TYPES OF CUSTOMER ORDERS

• Made to Order (MTO)

• Make to Stock (MTS)
• Engineer to Order(ETO)
• Assemble To Order.
 Difference between the MTO, MTS,ETO

• Manufacturing after receiving customer's orders means to start a pull-

type supply chain operation because manufacturing is performed
when demand is confirmed or customer placed order.

• The opposite business model is to manufacture products for stock

MTS (Make to Stock), which is push-type production.

• Assembling after receiving a customer's orders is "ATO (Assemble

To Order)" and starting with development designing is "ETO
(Engineer To Order)". Construction by general contractors and plant
construction by engineering companies are categorized as ETO.
 What is MTO?
• Make to order (MTO), is a production approach
where products are not built until a confirmed order
for products is received.
• MTO (Make to Order) is a manufacturing process in
which manufacturing starts only after a customer's
order is received. Forms of MTO vary, for example,
an assembly process starts when demand actually
occurs or manufacturing starts with development
planning.
 WHY IS MTO?
• Customers receive an added benefit by availability of custom
goods.
• A higher standard of quality is maintained.
• This approach is considered good for highly configured
products, e.g. automobiles, bicycles, computer servers, or
for products where holding inventories is very expensive,
e.g. aircraft.
• There are various models for Make To Order. For example, in
some cases, the process of assembling prepared parts starts
when actual demand occurs. Or, in other cases, the
production process starts with the obtaining of materials and
parts, or further back from development designing
(engineering).
MAJOR STEPS IN MTO
1 - Sales activity: Sales order is created with reference to customer
order (customer PO)
2 - Planning activity: Planned orders are generated as output of
Material Requirement Planning (MRP) With reference to Sales
order .
3 - Ext. procurement: Required components procured externally
using purchase order (PO).
4 - Subcontracting: Procured components send to the
subcontracting vendor & received semi finished product .
5 - Production: Semi finished product processed internally and
gives output as final product/Assembly .
6 - Delivery activity: Delivers final product/Assembly to the
customer against Sale order.
 Advantage and Disadvantage of MTO
• The main advantages of the MTO approach in environments of high product
variety is the ability to supply the customer with the exact product
specification required, the reduction in sales discounts and finished good
inventory, as well a reduction in stock.
• The main disadvantage of MTO is manufacturers are susceptible to market
demand fluctuations leading to a reduced capacity utilization in
manufacturing.
• ATO (Assemble To Order) of computers by Dell Inc. and production of
sports bicycle by National Bicycle Industrial Co., Ltd. are examples of
creating a new business model by matching the diversification of products
with ATO, BTO, ETO, and with new-style marketing.
National Bicycle Industrial Co., Ltd. says
"We can deliver a custom-made bicycle to you within two weeks."
Solectron Corporation says
"We can assemble the computer you requested and deliver it within a
week."
 Make To Stock
• The MTS method requires an accurate forecast
of this demand to determine how much stock it
produces. If demand for the product can be
estimated accurately, the MTS strategy is an
efficient choice for production.
• MTS (Make to Stock) literally means to
manufacture products for stock based on
demand forecasts, which can be regarded as
push-type production.
 Drawbacks of MTS
• If the forecast be even slightly off, the company may find they have too
much inventory and limited liquidity. This possibility of error is the
primary disadvantage of using the MTS system for production. Wrong
information can lead to excess inventory, stock outs, and revenue losses.
• MTS approach requires a business to redesign operations at specific times,
instead of keeping a steady level of production year-round. This regular
adjustment ends up being costly, and the increased costs must either pass
on to the consumer or be absorbed by the company.
• Another issue of MTS is to handle supply management so as not to have
excess inventory. Therefore, small-batch supply should be frequently
performed by pull-type demand such as QR (quick response), ECR
(efficient consumer response), CRP (continuous replenishment program),
and VMI (vendor managed inventory). By doing so, product flow will
accelerate and cash flow will increase. Changing push-type MTS to pull-
type supply chain models such as CRP and VMI is the key to successful
supply chain management.
 Engineer To Order (ETO)
• Engineer to order is a type of manufacturing process in which a
product is designed, engineered and finished after an order has been
received. The product is engineered to meet the specifications
desired by the received order.
• The representatives of the customer company engage with the
manufacturing team throughout the process to ensure that each and
every specification is met. The engineer to order process is used for
very complex products or very specialized products.
Steps for an efficient ETO process:
I. Develop a consistent and efficient part numbering process
II. Ensure a robust designing process
III. Create proper bills for each item, subpart, assembly etc. to be used
to manufacture the product
IV. Manage the engineering changes properly
Challenges with ETO (Engineer-to-order processes)
• The entire process has to be carefully planned as the product to
be manufactured is complex
• High level of customer participation in the entire process
• A robust designing process required
• Lot of confusion is generally there between company and the
consumers
• Several revisions may be required to finalize the engineering
specifications
• Costs of the entire process are very difficult to be predicted.
Examples
ETO model is used in industrial manufacturing processes where
the products are complex and costly. ETO process is used by the
companies like Rafale, BEL, BHEL etc when they receive any
special order from the defense ministry or any other ministry of
any India. ETO model is very common in defense, aerospace
and energy industry.
 Assemble To Order
• It is a production model where the final goods are produced
once the manufacturer receives the order from the customers.
• The components are already produced and stored at the site.
This method is different from the build to order method where
the manufacturer starts producing from the scratch after
customer places his order.
• It is advantageous for the customer as he gets the customized
product in short time and also the cost for keeping the
inventory reduces for the manufacturer.
•ATO technique is beneficial for business where huge number of
customers is demanding for customized products. Since the make to
stock, i.e. manufacturing and keeping the stock before the customer
places the order is not feasible over here due to varied customer
preferences, the production manager uses assemble to order technique
and produce only the common sub parts before.

Example:
•One well known example for ATO technique is the success of Dell
Computer’s.
Company allows the customers to choose among several processors,
monitors, disk drives etc. There can be numerous combinations of the
components which a customer can choose. The producer keeps the
stock of parts and assembles it once he receives the order from the
customer and delivers the customized product in almost no time.
Summary on a very generic level.
• MTS: Standard product made to a
forecast before any committed orders come in
• MTO: Standard products not held in inventory and
made after a committed order comes in
• ATO: Standard product where some components
are held in stock and the finished product is
finished after the order comes in
• ETO: complex structures and customer specified
projects which were never built before and make it
impossible to be handled with standard variations